Montana Voices: No one wins if Congress defaults on nation’s debt

By Bruce LohofSeptember 13, 2017

I wonder if Montana’s congressional delegation knows the difference between spending money and paying bills.

Bruce Lohof

Once again – for the second time in a decade – Congress flirts with defaulting on the nation’s debt by failing to raise the federal debt ceiling. Granted, the can was kicked three months down the road when, last week, it was attached to the Harvey hurricane relief package. Don’t rest easy, though; some legislators still want you to believe that defaulting on the debt will reduce government spending.

Think of it like this.

You use your VISA card to buy a candle-lit anniversary dinner or get new shoes for the kids or fill up the jalopy’s gas tank. That is spending money. At month’s end you receive a statement from the folks at VISA and you send them a check. That is paying the bill.

Pivot from your pocketbook to Washington’s.

The U.S. Navy requisitions a new ship or the U.S. Forest Service fights another forest fire or a U.S. senator procures a new computer. That is spending money. The U.S. Treasury defrays those expenditures. That is paying the bill.

The problem, of course, is that Washington’s expenses exceed its revenues. (You may be personally familiar with this phenomenon: in my home it’s called the too-much-month-at-the-end-of-the-money syndrome.) Hence the national debt. Let me quote Edward Kleinbard, former chief of staff of the Congressional Joint Committee on Taxation: “The money coming in is systematically less than the money being disbursed … and Treasury makes up the difference by borrowing in the capital markets.”

Personally, you know that you have only two options. One, reduce expenses, e.g., fewer candlelit dinners, fewer shoes for the kids, or less gas for the jalopy. Or two, enhance revenue, e.g., a bigger paycheck or an inheritance from a maiden aunt. In any case your solution ISN’T stiffing the folks at VISA. That makes you smarter than some members of Congress, for whom defaulting on the nation’s debt is the way to go.

Does the Harvey relief package vote tell us where Montana’s congressional delegation stands on the debt ceiling? Hmm.

U.S. Sen. Steve Daines voted nay. Or, more precisely, he voted against hurricane relief because a vote for relief was a vote for a higher debt ceiling.

“If there’s ever a good example of kicking the can down the road, it is continually raising the debt ceiling and not dealing with the cause of the debt,” he has said. For Daines, the Harvey package was probably “just … another punt.”

U.S. Rep. Greg Gianforte voted yea, but his official website made it clear that disaster relief – in Texas but rather more so in Montana – was on his mind. Texas: “Our hearts go out to … all affected by Hurricane Harvey” and “this funding represents an important first step to help.” Montana: “The people of Montana also face a massive disaster” and “I will continue being a strong voice for Montana, ensuring that folks in Washington understand the devastation on the ground in our state.” The debt ceiling: not a word.

U.S. Sen. Jon Tester voted yea, debt-ceiling increase and all. The vote was consistent with his position during the 2011 debt-ceiling crisis when he called on Congress “to prevent an economic meltdown, raise the debt ceiling and work together, in a bipartisan manner, to reduce our debt and deficit over the long term.”

We’re left hoping that, three months down the road, politicians will understand: Stiffing the folks at VISA won’t reduce your personal debt and defaulting on the national debt won’t reduce Washington’s. It will have consequences, though. Namely:

One, the rate of interest at which Washington borrows money will increase. Following the 2011 flirtation, Standard & Poors downgraded the credit rating of the United States. Another downgrade would follow default as night follows day, and experts suspect that an increase of no more than 0.2 percent a year would cost Washington about $400 billion over the next 10 years.

Two, the rate at which American businesses and families borrow money would increase because bank rates are determined by Treasury rates.

Three, each month tens of billions of dollars in valid claims against Washington would go unpaid, triggering a major recession.

Meanwhile, of course, the national debt would stand – or, rather, increase – because, as you know, stiffing VISA doesn’t pay down the debt.

As Kleinbard explains it, “None of this is particularly speculative; almost all economists and policy makers agree on the enormous fiscal, economic and reputational costs of default.” What, then, are we to make of it? Perhaps Congress really doesn’t know the difference between spending money and paying bills.

Bruce A. Lohof is a native of Montana. A former professor and a retired diplomat, he lives in Vienna and in Red Lodge.

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